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Mack-Cali Realty Corp (NYSE:CLI)
Q2 2020 Earnings Call
Aug 3, 2020, 8:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, everyone, and welcome to the Mack-Cali Realty Corporation Second Quarter 2020 Earnings Conference Call. [Operator Instructions]. At this time, I would like to turn the conference over to Deidre Crockett, Chief Administrative Officer. Please go ahead.

Deidre Crockett -- Executive vice president and Chief Administrative Officer

Thank you, Operator, I would like to remind everyone that certain information discussed on this call may constitute forward-looking statements within the meaning of the federal securities law. Although we believe the estimates reflected in these statements are based on reasonable assumptions, we cannot give assurance that the anticipated results will be achieved.

We refer you to the Company's press release, annual and quarterly reports filed with the SEC for risk factors that impact the Company. With that, please allow me to introduce MaryAnne Gilmartin, Mack-Cali Board Chair and Interim Chief Executive Officer. Go ahead, MaryAnne.

MaryAnne Gilmartin -- Board Chair and Interim Chief Executive Officer

Thank you, Deidre. Good morning, and thank you for joining Mack-Cali's second quarter 2020 earnings conference call. Today, I plan to provide a few opening remarks and will then pass the call to our leadership team. Marshall Tycher, Chairman of our multifamily platform Roseland, will walk us through some performance highlights. Nick Hilton, our Executive Vice President of Leasing will discuss our office operations; and Dave Smetana, our Chief Financial Officer, will discuss our key financial metrics, and then we will open up the call for questions.

We've also filed a supplemental this quarter that is located on the Investor Relations section of our website. Please contact David Smetana with any further questions. I was recently appointed to my role as interim CEO by the Board of Directors, and with just a few weeks on the job, I will keep my remarks brief.

So let me start by thanking Mike DeMarco for his years of service to Mack-Cali. I am extremely excited to have been asked by my fellow Board members to step in to lead Mack-Cali as the Board works to identify a new permanent CEO. Certainly, these are unprecedented times, and I recognize that there remains an air of uncertainty with an executive change, amid a challenging healthcare crisis and what that may bring. I do not take that lightly.

I joined Mack-Cali's Board following the 2019 Annual Meeting, I was appointed Board Chair in June. I've spent the entirety of my career, developing and operating innovative, mixed use real estate projects in the New York region. I love real estate, and believe in the importance our sector plays in the lives of Americans every day.

While my tenure as CEO is only temporary, I am deeply committed to ensure we continue to execute on the plans currently in place which remain highly focused on collecting rents, leasing our properties, and completing the asset sales that are under way. I also plan to continue in my role as Chair after the Board selects a new CEO. Over the coming months, I will complete a tour of all of our assets, and will be spending time with all of our team members in the field. I'm committed to providing stability, continuity and empowerment within the organization to be accountable and aligned with reaching our strategic objective.

As the Board's Chair, I have direct insight into the priorities of the Board from an overall strategic perspective, and I have spent a considerable amount of time listening to our shareholders and evaluating the business. One of the significant takeaways and the Board is in clear alignment with shareholders is that the Company is unlikely to realize maximum value in its current structure.

Consequently, the Board is actively continuing to pursue value maximization strategy. In fact, even though the short six weeks since they have been in place, sales of the Company's suburban assets which are continuing, have been among the highest priorities. However, given the pandemic, we are not in a position to provide a definitive timeline for when they will be completed. The Board is committed to unlocking value and is squarely focused on the pursuit of the right strategic alternatives for the Company in order to accomplish this objective.

Those efforts are well under way, and does not require, nor are we waiting for the hiring of a new CEO to move ahead if appropriate. I'm excited to build upon Mack-Cali's accomplishments, support our operational excellence, and pave the way for success at every level of the Company. I will work with Deidre and Dave to meet our shareholders and analysts and look forward to reporting on our progress each quarter.

With that, I will turn the call over to Marshall to discuss our multifamily operations.

Marshall B. Tycher -- Chairman, Roseland Residential Trust

Thanks MaryAnne. In the second quarter, Roseland's percentage leased finished at 92.6% as compared to 95.7% last quarter. The reduction was primarily a result of a dramatic decline in new lease traffic in the quarter due to COVID-19.

We believe the decline in occupancy and a reduction in movies traffic is consistent with other Northeast focused portfolios and substantial portion of our comps. Despite the traffic reduction, our portfolio experienced a 58% retention rate, 300 basis points higher than 2019, and renewal rates on retained leases grew 2.8%. In July, net leasing activity turned positive. We believe the worst is behind this.

In the quarter, our same-store portfolio experienced a 10.2% decrease in NOI generated by a 5.2% loss in revenue. On a year-to-date basis, the same store NOI is negative 0.6%. The quarterly loss includes a one-time $944,000 writedown from a single corporate provider in Jersey City. Absent that write-off, our same-store portfolio would be negative 5% for the quarter and positive 2.1% for the year.

Subsequent to quarter end, we reached a settlement with that provider and retrieved 71 of their furnace units. We are evaluating alternatives to capitalize on these furnance units now. We continue to deliver a high level of service to our residents during the COVID period. Our staff has been onsite and responsive. We have increased the quality and quantity of daily cleanings across the portfolio, and we have enhanced our resident's lifestyle by scheduling virtual programming, implementing door-to-door deliveries and introducing additional dining options.

In regards to our hotel properties at Port Imperial, the Envue was closed at the end of March and remains closed today. However, the Residence Inn continue to operate and finished the quarter with an average occupancy of 70%. In late June, we activated Envue's 15,000 square foot patio [Phonetic] per dining, which has been averaging a $100,000 on weekly sales in its comfortable rooftop setting. The Company has five projects representing 1,942 units in construction, which are projected to generate $62 million of stabilized NOI on the development yield of 6.15%.

Moreover, as of now, we only have a $5 million capital obligation remaining to complete this portfolio. The Emery in Massachusetts has delivered its initial 240 units of 326 units. As of July 27th, we have leased 81% of delivered units at rents in excess of our initial pro forma. The balance of the units will be completed by quarter's end. Roseland's preparing lease up activities at three projects for an initial release in early 2021, including 673 units in Port Imperial at both Capstone and RiverHouse 9 and The Upton at Short Hills, a 193-unit luxury community in one of New Jersey's premier municipalities adjacent to the Short Hills Mall.

Our fifth project, The Charlotte, is scheduled for delivery in the first quarter of 2022. This signature development is a 750-unit tower located in Jersey City, Waterfront submarket on Christopher Columbus Drive, which will benefit from a below-market pilot fixed at 7% for 20 years. Though construction activities are proceeding at a near standard pace, as a result of COVID-related delays, we have revised our supplemental schedules to account for, on average 90-day delivery delays.

Subsequent to quarter end, we reached agreement to refinance our largest 2021 maturity, having locked a seven-year interest-only $165 million mortgage at 2.9% for Monaco. Looking ahead, we are continuing pre-development activities on three potential Hudson River starts including Harborside 8, a 679-unit, highly amenitized tower which will be adjacent to our corporate headquarters here at Harborside 3; the Park Parcel at Port Imperial, a 302-unit mid-rise development to be constructed over looking a 17-acre City Park with unencumbered 270-degree views of Manhattan. And the second phase of Urby, a proposed 796-unit tower adjacent to our successful Urby project with the highest rents per square foot in Jersey City.

I will now turn the call over to Nick.

Nicholas A. Hilton -- Executive Vice President, Leasing

Thank you, Marshall. Before I get into our leasing results, I'd like to quickly touch upon our continued response to the ongoing COVID-19 pandemic. All the protocols discussed in my last quarter's remarks have been implemented portfoliowide, including increased and expanded cleaning procedures, augmented ingress and egress plans to limit crowding, limited elevator capacity, and mandatory mask use in common areas.

We take the health and safety of our tenants, co-workers and operation staff very seriously. Together with our property management team, we continue to take all the necessary precautions to ensure a safe, secure, and clean environment as the tri-state area begins to transition into the reentry phase. We have also kept all of our buildings open and operational for our tenants throughout this crisis.

From a new leasing perspective, we continue to make progress portfoliowide, signing just over 155,000 square feet in the second quarter. This resulted in our Core and Waterfront portfolio finishing at 80.3% leased at quarter end. Of these transactions, approximately 6% or 10,000 square feet were new leases, and 94% or 145,000 square feet were in-place renewals. Across all core markets, our rents on second quarter leasing rolled up 3.6% on a cash basis and 12.9% on a GAAP basis.

As we turn our focus to the specific markets, the Waterfront closed approximately 55,000 square feet of transactions, finishing the second quarter at 78.6% leased. We were pleased to see increases of 8.5% on a cash basis and 18.6% on a GAAP basis over these deals. While the pandemic has paused many of our discussions, we still have approximately 200,000 square feet of transactions currently in negotiations across a diverse tenancy mix including technology, financial services and insurance.

Looking ahead, we have a limited amount of lease roll with just over 54,000 square feet expiring on the Waterfront through the end of the year. Turning to the performance of our suburban portfolio, in the second quarter, we executed over 101,000 square feet while achieving positive rent increases of 1.2% on a cash basis and 10.3% on a GAAP basis.

For the remainder of the year, we have over 118,000 square feet expiring in our suburban portfolio, of which approximately 91,000 square feet pertain to assets that are under contract to be sold by year's end, subject to any unforeseen delays from the pandemic. And of the remaining 27,000 square feet rolling, we expect to renew approximately 20,000 square feet as we move ahead.

With that, I'd like to turn the call over to David.

David J. Smetana -- Chief Financial Officer

Thanks, Nick. We reported core FFO per share for the quarter of $0.28 versus $0.40 in the prior year. To provide some perspective in the absence of formal guidance, the results of each division were roughly in line with heavily revised down expectations that we began to flow through our models in May. We had in line office results as we anticipated increased credit write downs and benefited again from having very low lease expirations. And we had slightly lower than anticipated multifamily results that included a $944,000 write-off related to our corporate apartment operator.

In total, there were $4.2 million of credit charges in the quarter or $0.04 per share including the $944,000 charge related to the corporate housing provider, $2.2 million of the charges related to reserve allowances and $2 million related to straight line rent receivables. The strength we saw in rent collections when we presented at NAREIT in early June of 96% in our office portfolio, and 97% in multifamily carried through as a rough averages for the quarter.

In July, we have collected 98% of office rents and 99% on the multifamily side. The slight increases is attributable to the hard work our leasing and operations teams have done to appropriately give a limited number of modifications or deferrals where needed, and getting tenants back on a normal payment cadence.

While our exposure to hotel operations, which were 4% of revenues in Q1 and parking operations -- and parking operations, which are currently just 3% of revenues are modest, they were disrupted in line with our expectations. For parking, we think the second quarter run rate of $3 million is a conservative way to think about the second half of the year, but remain hopeful that in the fourth quarter as people return to work, it will be more apt to drive and park with us. Our hotel operations remain limited to the Residence Inn portion of our dual-flag Port Imperial Hotel. That hotel contributed $960,000 EBITDA loss in the second quarter.

We continue to believe the hotel recovery will be slow and do not plan to reopen the Envue and Port Imperial and the Hyatt in Jersey City, until the fourth quarter at best. And thus we recommend using the current quarter as a run rate until further notice. Our office cash same-store NOI increased by 13.4% in the second quarter as we continue to receive the benefit of all of our major blend-and-extend leases at Harborside, now cash flowing over prior periods, but still had free rent provisions. This will however moderate in the second half.

GAAP same-store NOI was down by 3.6% with $1.3 million of straight-line rent reserves in our same-store pool creating a negative 5% drag on GAAP same-store NOI. We had $1 million of credit reserve allowances and $1.8 million of straight-line rent reserves across the entire office portfolio including our discontinued operations.

In the office segment, we originally gave guidance that included 135,000 square feet of Waterfront leasing for the year. To date, we have signed a 105,000 square feet of transactions on the Waterfront with another 18,000 square feet in leases today. Given the current operating environment, we do not assume any further speculative new leasing to take occupancy between now and the end of the year in our internal projections.

To reiterate what Nick said, for the remainder of the year, we have over a 118,000 square feet expiring in our suburban portfolios, of which 91,000 square feet pertain to assets that are under contract to be sold this year. Of the 27,000 square feet remaining in our suburban portfolio, we expect 20,000 square feet to renew in the coming quarters. Touching briefly on the multifamily results, residential same-store NOI, which Marshall has already given great detail on was down 5% for the quarter, when excluding $944,000 writedown related to a corporate housing provider. We expect incentives to remain elevated as we seek to rebuild occupancy.

Now, on the transaction side. Our Parsippany and Giralda portfolio sale has been restructured for a gross price of $272 million, a 4% discount to the original purchase price of $285 million. The first phase of 11 properties was contracted for $167 million. In July, the first property, three Giralda farms, closed for $8 million leaving ten of the 11 properties in Phase 1 scheduled to close at the end of the third quarter for the remaining $159 million.

The second phase under contract for $105 million is for four of those 15 remaining properties with these closing schedule to take place in the fourth quarter. For the Monmouth, Short Hills and MetroPark portfolios, we believe the timing of these sales is very hard to predict and see closings taking place either late in the fourth quarter or early in 2021. In addition to the Parsippany and Giralda portfolio sale, we currently have three properties including 111 River totaling 833,000 square feet under contract for closing by year end.

On our NAV schedule, which we publish quarterly, while we are cognizant of the fact that price discovery is challenging in this environment, we are trying to do our best to make sure our assumptions are reflective of what we are seeing operationally, and where there is buyer interest reflective of where pricing may end up. We took a 3% discount to our multifamily NAV in the quarter given the uncertainty of NOI growth, but also reflective of a healthy multifamily financing market at record low rates.

Notably, we took a 6% haircut to our unlevered Waterfront asset value and some reductions in land value for a 7.4% total hit to office NAV and a 7.1% hit to total NAV. Turning to the balance sheet, we have no debt maturities in 2020 and in July, as Marshall mentioned, we placed the deposit and rate locked at 2.9%, the refinancing of our only major 2021 property level maturity, $165 million multifamily loan on Monaco with its existing lender.

We expect to close this mortgage in November, avoiding prepayment penalties. The net debt to EBITDA metric was 13.0 times at quarter end. The metric remains elevated as we carry all of the multifamily development debt and no EBITDA benefit. We expect this metric to improve as we have four multifamily development properties that will begin contributing to EBITDA within the next 12 months to 24 months, including the Emory, which opened in Q1 2020.

Additionally, the metric was negatively affected and increased by 1.3 turns from negative hotel and parking impacts. Lastly, I'm pleased to say today, as we sit here today, we only have $5 million of equity left to fund on our current CIP pipeline, all relating to our 750 unit project called The Charlotte in Jersey City. We now will begin for the construction loan portion of all five development projects totaling $1 billion in construction costs with a projected 6.2% stabilized yield.

With that, I will turn the call back to the operator to open it up for questions.

Questions and Answers:

Operator

Thank you. [Operator Instructions]. We will now take our first question from Manny Korchman from Citi. Your line is open. Please go ahead.

Emmanuel Korchman -- Citigroup -- Analyst

Hey, good morning, everyone. MaryAnne, realizing that you've been on the CEO seat for just a couple of weeks, but in the Board room for longer, if you could just share current views as to how the Board's thinking about hitting on strategic alternatives, or thinking about strategic alternatives right now beyond the suburban asset sales, which sounds like the current strategic focus?

MaryAnne Gilmartin -- Board Chair and Interim Chief Executive Officer

Thanks, Manny. Sure. So clearly the focus on the suburban dispositions is a clear priority that's been reaffirmed by the newly reconstituted Board of Directors. In addition, there is a feeling that the lease up strategy on the Waterfront is critical, and that we are going to be focused on wins there in the coming months.

And then with the Board, we're going to be working as management to develop strategic alternatives in the -- in the coming months. Clearly, given the environment we find ourselves in, there are challenges around execution and whether it's the right time to make any strategic moves, but the Board of Directors is focused on this, and we'll be ready should there be an opportunity.

Emmanuel Korchman -- Citigroup -- Analyst

And in that light, how do you, or how should we think about the multifamily portfolio versus office holdings?

MaryAnne Gilmartin -- Board Chair and Interim Chief Executive Officer

As I said earlier in my remarks, the thinking is that there is decoupling needed of these two asset types, and so as we review strategic alternatives with that in mind, we'll be giving further direction as to our priorities related to the residential portfolio.

Emmanuel Korchman -- Citigroup -- Analyst

And Nick, maybe a quick one for you, realizing that you guys tried not to change the NAV too much because of COVID, but it doesn't look like there were any market rent adjustments for the Waterfront in NAV. Was that just to keep consistency from not including those COVID impacts or do you really think the market rents haven't changed?

Nicholas A. Hilton -- Executive Vice President, Leasing

Well, I would say that if you look at the broader market right now, it's a little too early to tell. Fundamentals within the broader market just even outside of our portfolio haven't changed much -- haven't changed much rather. Maybe availability rate is really hovered around 20% in the market and average asking rents have probably ticked down about 3%. As we look at our portfolio, I do think that we are going to reevaluate what our rents are, everything from rents to concession packages. I just think it's a little bit early right now to give you a firm feedback in terms of percentages, what have you.

Emmanuel Korchman -- Citigroup -- Analyst

Okay. Thanks everyone.

Operator

We will now take our next question from Derek Johnston from Deutsche Bank. Please go ahead.

Derek Johnston -- Deutsche Bank -- Analyst

Hi, everyone. Good morning, and thank you. Hi, MaryAnne, good to meet you.

So it sounds actually like the strategy hasn't shifted that much at this time, or is it just that you're on the job too early? Or is the strategic focus on suburban dispositions and getting to 60-40 in Waterfront focus, is that still what we should be thinking about? Or will there be adjustments to the strategy, or what is the difference in the strategy under new leadership? Thanks.

MaryAnne Gilmartin -- Board Chair and Interim Chief Executive Officer

Thanks. I think that the way for you to think about the near-term strategy is to stabilize and empower the management team here at Mack-Cali, sell the suburban assets and lease office space on the Waterfront. And then inside of that strategy, there is the broader thinking around where does the Company go, and what strategic alternatives are available for the Company.

And again just given where we are in the middle of a pandemic, it's difficult for us to give any sense of how opportunistic we can be. What we're not going to do is sell the Company on a fire sale, and we need to be strategic, and that is the work of the day.

Derek Johnston -- Deutsche Bank -- Analyst

Okay, thank you. Just interestingly on the Hoboken office building sale, I think $432 per square foot is an interesting price discovery, at least for your Waterfront office portfolio. Did this -- when did this go into contract? Did it go into contract before the pandemic or after, just from a discovery standpoint please?

MaryAnne Gilmartin -- Board Chair and Interim Chief Executive Officer

As I understand it, the pricing was -- the price discovery occurred before the pandemic, and we're working hard to close on the sale, and think that we can hold pricing pretty firm, obviously the coming weeks will tell. But it's a great asset, and obviously, we think it's a very strong per square foot price.

Derek Johnston -- Deutsche Bank -- Analyst

Okay. And look clearly residential quarter-over-quarter, losing 310 bps of leased occupancy is tough. So I'm certainly expecting that you do have some concessions in there. Has there been any evidence of folks moving out of Manhattan? Maybe stepping stoning it to Jersey City a little bit or is it basically just the mass exodus that we're seeing in New York kind of is sweeping you guys up at least in the near-term?

Marshall B. Tycher -- Chairman, Roseland Residential Trust

Good morning. It's Marshall Tycher. I think the latter comment is probably more consistent. Clearly, there's a lot of dislocation of jobs and a lot of uncertainty and New York's a big job driver for this entire North Jersey market. So people are leaving Manhattan and they're making new decisions, they're making them quickly. So we're going to have to wait to see how it settles down, but we are certainly being impacted by people's job dislocation and indecision.

Derek Johnston -- Deutsche Bank -- Analyst

Well, thank you everyone. Exciting times, congrats MaryAnne.

MaryAnne Gilmartin -- Board Chair and Interim Chief Executive Officer

Thank you.

Operator

We will now take our next question from Steve Sakwa from Evercore. Please go ahead.

Steve Sakwa -- Evercore ISI -- Analyst

Thanks, good morning. Nick, I was wondering if you could comment a little bit on the competition that you're facing from 30 Hudson Street. I know there were a couple of large leases that got done, which might have slipped through your fingers. I mean how competitive was that leasing situation? And, I guess with that building now leased up, I guess how do you feel about leasing up Harborside at this point?

Nicholas A. Hilton -- Executive Vice President, Leasing

Thanks, Steve. Yeah. So I'll address both deals, right. So we were one of two in both instances. For the Merck transaction, also sometimes referred to as the WeWork transaction, the tenant really had a firm occupancy timing. And that was just really based on their own -- some things happening within their own business. And 30 Hudson offered a build solution for them, and while Harborside 5 was going to be built from our condition.

We offered solutions to mitigate the cost differential. I think at the end of the day though, the execution risk was still too great to miss any of their timing due to any unforeseen delays from COVID. And as we look at the AIG deal again, we were a one of two. We had a perfect block right in the middle of the stack. They were, and are a tenant within our portfolio. So negotiations were moving quite well.

Midway through the lease, the requirement grew. They grew out of that block, and to accommodate them in the building, we split them over two elevator banks, it just wasn't favorable. So they focused their efforts at 30 Hudson and wrapped up the deal there. As I -- as you look over at 30 Hudson, again it's a owner-occupied building. They've leased up roughly half of the building. It's a 1.4 million square foot tower, and they've done about 700,000 square feet of leasing there, right.

So to say the building is for sure wrapped up, I'm not going to say that outright. Anything is possible. But for right now, I am happy to at least consider that building having a bow on it. I think that it does speak to our ability to be in front of the right tenants. Again, we were one of two in both instances, but right now I think having a top three building in the market like Plaza 5 will speak to those tenants, those future tenants in the future, and given the fact that we have a lot of different types of products right in the same area, different sized floor plates, different pricing structures, I like our odds moving forward.

Steve Sakwa -- Evercore ISI -- Analyst

Okay, thanks. And then I guess just moving to the suburban sales. The small haircut on the first set isn't surprising, but maybe Dave or MaryAnne, just talk about the balance, the Monmouth, the Short Hills, the MetroPark, just remind us, were those being pushed out more for tax consideration purposes? Or is it just kind of lack of better pool or just inability to kind of handle it all at once? Just trying to sort of understand the timing of these and whether those could be pulled forward in any way and maybe with an uptick in suburban leasing activity.

David J. Smetana -- Chief Financial Officer

Thanks, Steve. I'll try to handle that one. So as we've talked about before, these -- all of these sub-portfolios, a number of buyers in New Jersey usually, local operators teaming up with private equity or hedge fund money have taken a look at these properties. I'd say the delay really is really just a function of the COVID environment we're with. In our experience with Parsippany and Giralda, what seem to push it out would always be the lenders needing to get in line and specifically that second piece of debt, which got more expensive, but now we're seeing firming up.

So we are trying to get best execution. We've done tax planning to fit these portfolios both into this year and next year. So I would not say it is tax planning holding it up. We want the best execution possible, and we want to pay down all of our corporate debt as soon as possible with the proceeds.

Steve Sakwa -- Evercore ISI -- Analyst

Okay. So maybe Dave, just -- maybe elaborate a little further. Just in terms of the demand or appetite for those other portfolios, are there kind of one group looking at each of those portfolios, multiple groups, just trying to get a sense for the demand and the pricing levels?

Nicholas A. Hilton -- Executive Vice President, Leasing

So Steve, it is multiple groups looking. They're all now listed with brokers. I would say kind of notably, our CIO and myself on Metropark, we are starting to see more institutional names than we typically see in New Jersey starting to look at that product. But I think Monmouth and Short Hills again will go to kind of local operator guys with some more hedge fund or private equity money back in them. But, we feel good about our prospects of getting the executions done within a 12-month timeframe. And we're looking to maximize price, but taxes should not get in our way and we feel good, but are just trying to be conservative given the pandemic and the environment.

Steve Sakwa -- Evercore ISI -- Analyst

Okay. And then last question, I noticed on kind of the add-back, there were some impairment charges, you had obviously some proxy costs in the quarter, there were some severance costs. Just -- I assume some of those are one-time, but anything that kind of spills over into Q3 or I guess with the CEO change, what should we be looking for in terms of kind of costs moving forward?

Nicholas A. Hilton -- Executive Vice President, Leasing

Yeah, Steve. There shouldn't be much spillover with any of those. Each quarter we look at impairments, we had some land impairments, we had the purchase price adjustment on Parsippany and Giralda was the biggest one there on the $11 million of operating properties. And with the CEO, I think we have a note in our 10-Q, that Mike's leaving being as leave without cause pursuant to his contract. So I think the proxy is going to be the best guide there. It was a third quarter event. So look for that in the third quarter.

Steve Sakwa -- Evercore ISI -- Analyst

Great. Thanks. That's it from me.

Operator

We will now take our next question from Anthony Paolone from J.P. Morgan. Please go ahead.

Anthony Paolone -- J.P. Morgan -- Analyst

Okay. Thanks, good morning. On the 200,000 square feet of leasing, I guess in the pipeline are deals that are out there. Was that all incremental or is some of that to replace any exits?

David J. Smetana -- Chief Financial Officer

So it's -- of the 200,000 square feet I mentioned, it's slightly higher than it has probably. In terms of leases, we've got about 185,000 square feet that we're kind of talking through, everything is moving extremely slowly, proposals and other 80,000 square feet. For new deals, I would split it almost 50-50, so call it about 130,000 square feet of new deals and 135,000 square feet of existing tenants, either a renewal or expansion.

Anthony Paolone -- J.P. Morgan -- Analyst

Okay. And I think you had mentioned, I think a little over 100,000 square feet expiring in the remainder of the year in those properties that are teed up for sale. Does the outcome of whether those tenants renew or not have a bearing on whether the sales go through or could that get in the way of things?

Nicholas A. Hilton -- Executive Vice President, Leasing

No.

Anthony Paolone -- J.P. Morgan -- Analyst

Okay. And then a question I guess for MaryAnne. On the Board side, prior to the reconstitution, I think there was a general Board advisor, there was a committee, the committee had an advisor. Can you just reset on, is there an actual process, is there a committee running a process or is this just open to ideas as any Board would be at this point?

MaryAnne Gilmartin -- Board Chair and Interim Chief Executive Officer

Thank you. As you might recall, there was a shareholder value committee that was created in 2019, and the work of that committee will continue with a similar committee of the new Board that will focus on strategic alternatives and inbound. And so the Board will operate I think with maximum efficiency, if there are committee structures that do much of the heavy lifting. So that is the current thinking. And as you know, we have a Lead Director as well to complement the fact that I am now management as a Board Chair.

Anthony Paolone -- J.P. Morgan -- Analyst

Okay, great. Thank you.

Operator

We will now take our next question from Jamie Feldman from Bank of America. Please go ahead.

Jamie Feldman -- Bank of America Merrill Lynch -- Analyst

Thank you, and good morning. I guess for Nick, can you just talk about any change on the demand side for suburban office leasing? Are you seeing interest in suburban satellite offices, and if so, what submarkets? And also, is it co-working type tenants to prepare for shorter-term leases or more direct?

Nicholas A. Hilton -- Executive Vice President, Leasing

Yeah. No problem. I would say from the suburban portfolio, absolutely I think we are seeing a bit of an uptick. Primary markets, we're seeing the uptick would be like a Metro Park, we're seeing some activity in Short Hills. Anything that's really centrally located by multiple highways, and also some access to mass transit. If you look at it holistically though, right, I mean, if you want to just look at the entire market itself, we're talking about the second largest suburban office market outside of Los Angeles, right? So -- and a kind of sort of a structural vacancy problem of about 20% market wide, right. So the real product that's going to perform well is the true Class A and trophy.

So I mean I think we're going to still continue to follow that strategy to capitalize on this activity and continue to execute the strategy disposing the assets.

MaryAnne Gilmartin -- Board Chair and Interim Chief Executive Officer

And Jamie, if I might also say about the Waterfront leasing strategy on the commercial side, we're seeing a movement toward decentralization and de-densification companies that are close in the urban core of Manhattan. We're looking at strategies even post vaccine to decentralize. And I think that bodes well for the Waterfront. I think there is potential for a refresh and a strategy that might look to capitalize on the world we find ourselves in, and the changing trends in how to keep talent safe, engaged and content.

Jamie Feldman -- Bank of America Merrill Lynch -- Analyst

Okay, thank you. As you think about the types of interest you're seeing, what's the typical lease structure? Is this very short-term one, two years short-term deals, just to kind of get through this, or are people really thinking about longer-term plans?

David J. Smetana -- Chief Financial Officer

Right now it's intermediate term, it's in the three-year, it's either hopping in a sublease or doing something that's three years, primarily looking for something that's built, furnished if possible. And then in terms of the type of tenant, it's -- what I've seen so far has really been in the fire sector. And the serviced office space not really, not as much. We are working with serviced office providers within our own portfolio, but in terms of new activity, no.

MaryAnne Gilmartin -- Board Chair and Interim Chief Executive Officer

And it's the west side story of Manhattan, the migration west, if you think about what that might mean for ability to again decentralize, de-densify and have better cost alternatives for lots of the corporate migration west on the isle of Manhattan, again it could bode well for the Jersey waterfront, if we think about it in terms of what we can expect in the coming years.

And I think some of this could be temporary, but I can equally see it being a more permanent approach to corporate locations.

Jamie Feldman -- Bank of America Merrill Lynch -- Analyst

If -- and that doesn't change your view on selling suburban. I mean do you guys kind of rethink it at all, or it's already going down that path?

MaryAnne Gilmartin -- Board Chair and Interim Chief Executive Officer

No. We're committed to the go-forward strategy on sale of suburban and again it gets to this idea that we want to focus on our knitting and the core competency on the Waterfront. We think that that's the wise strategy. And again, just based on price discovery and where we think the suburban assets can be disposed off, it's the best approach, given the other objectives of the Company.

Jamie Feldman -- Bank of America Merrill Lynch -- Analyst

Okay. And then I guess just thinking of other objectives. Can you -- MaryAnne, can you talk about any new views on leverage or delevering or is there any way you can get there faster than the prior plan? Just how do we think about your views of the balance sheet and what can be done to fix it?

MaryAnne Gilmartin -- Board Chair and Interim Chief Executive Officer

Yeah. Dave and I've spent a lot of time talking about that. I'm going to throw that over to Dave to answer it. It's clearly something that we're super-focused on, Dave?

David J. Smetana -- Chief Financial Officer

Thanks, MaryAnne. Hey, Jamie. So listen, it depends really how you define deleveraging. I know everybody points that to net debt to EBITDA metrics. So as I've pointed out there, listen to manage expectations over the next coming quarters and years until we really get our multi-family online and cash flowing, and we get some traction here and get some net absorption and lease-up on the Waterfront, it's going to remain elevated in the low teens.

But I do consider selling our suburbs and paying off our corporate debt delevering. It makes us safe, it gets rid of our covenants and more focused on our multi-family NOIs, which have better dropdowns to cash flow. And so we're excited to get going on the suburban sales and finish those off and get the Company more focused as MaryAnne said on its core competencies.

Jamie Feldman -- Bank of America Merrill Lynch -- Analyst

Okay, thank you. And then one for Marshall, with the pandemic, with more people working from home, you mentioned three projects that you could get started on. I mean any change in your view of what apartment design should look like or what construction -- what it might mean for construction costs, or your underwriting of future deals?

Marshall B. Tycher -- Chairman, Roseland Residential Trust

Those are some interesting topics, Jamie. So everybody is talking about the relook at the product itself, and it's interesting that our industry went from a certain size unit to smaller units and increased our common area amenities with the idea that people wanted to socialize and spend more time in those amenity spaces and the units could be smaller.

So the question is, is this mentality going to change? Certainly. Short-term it's going to change. The question is long-term, right? We're studying it now, we're relooking at our units. We've historically build larger unit averages than most of the industry. So we are definitely on the larger side of almost all of our comps as it is. I don't think we're going to look at building offices again and apartments, our fixed office space most people work with an iPad from their tabletop.

So we are looking at unit sizes and we are trying to determine if there is some changes to make there in these future starts. As far as construction cost and materials, material -- the commodity -- materials have been fairly static. I mean we're not primarily, we're not wood frame builders. So those numbers are going up dramatically to the home construction. But our products are pretty much flat. Where -- the interesting will be whether the labor trade start coming down in price, because they're not as busy as they were. And, we should see a little bit of help there. Historically, construction has a normal inflation rate of 3% to 5%, and maybe that will pull back a little bit due to labor. I don't think it will on commodities.

Jamie Feldman -- Bank of America Merrill Lynch -- Analyst

Okay. And then from a residential perspective, do you think differently about the best submarkets to be in going forward, if you do see a more of an urban exodus or different markets?

Marshall B. Tycher -- Chairman, Roseland Residential Trust

Well, the question becomes, do you look at the urban market, that is our Waterfront as an exit from Manhattan and the density of Manhattan. Or do you think if people go further west into the suburbs, I mean at this immediate moment, clearly the suburbs are doing a little bit better than even New Jersey urban markets. They've had less move-outs than we've had in the Waterfront. We think that's a short-term concept. We don't think it will be long-term, I think people will still want to gravitate the Waterfront for price and access to New York when the COVID has passed.

So, I think, short term for sure Jamie, the suburbs are faring better than the urban locations, but we don't think that's going to be a long term trend.

Jamie Feldman -- Bank of America Merrill Lynch -- Analyst

Okay. All right, thank you.

Marshall B. Tycher -- Chairman, Roseland Residential Trust

You bet. You're welcome.

Operator

We now have a follow-up question from Manny Korchman from Citi. Please go ahead.

Michael Bilerman -- Citigroup -- Analyst

Hey, it's Michael Bilerman here with Manny. MaryAnne, previously Bank of America and Goldman were acting as advisors to the Board and to the CEO in terms of running some processes. Are either of them still engaged with the Company? Or have you selected other banks? Or is there no banks currently involved?

MaryAnne Gilmartin -- Board Chair and Interim Chief Executive Officer

Thanks, Michael. Currently, there are no banks involved. As you point out, we've had the involvement of BAML and a banker to advise the special committee, that may or may not be the case going forward but there has been no decision made.

Michael Bilerman -- Citigroup -- Analyst

And if you think about the strategic review committee, on your web, it looks like it's Akiva, Frederic, Mahbod and Tammy. Was there any thought of putting someone who had previously been on the Board like yourself on that committee versus all new people coming in?

MaryAnne Gilmartin -- Board Chair and Interim Chief Executive Officer

It's a great question. I am advisor to that committee as is Frederic Cumenal. Both of us sat on the original 2019 committee, and have participated in discussions within that early new committee, and we would expect to continue to do that.

Michael Bilerman -- Citigroup -- Analyst

Okay. And then Dave mentioned per the Q, that there was a note about Mike, has that agreement now been finalized and signed? Would both parties have agreed to the terms, or is it still outstanding?

MaryAnne Gilmartin -- Board Chair and Interim Chief Executive Officer

As of yet, it's not been executed.

Michael Bilerman -- Citigroup -- Analyst

Is there any reason why that hasn't been done yet? And, how should we think about that?

MaryAnne Gilmartin -- Board Chair and Interim Chief Executive Officer

This is day five on the job for me. And so I think it's really just about the fact that these matters do take a little bit of time, but I would expect that it will conclude in short order.

Michael Bilerman -- Citigroup -- Analyst

Okay. Is the nominating and Corporate Governance Committee the members of the Board, who are running the CEO search? Or is it other people?

MaryAnne Gilmartin -- Board Chair and Interim Chief Executive Officer

There is a separate committee, a search committee setup within the Board and that Board has already got into work. That committee within the Board has already gotten down to work.

Michael Bilerman -- Citigroup -- Analyst

And who forms that, -- the CEO search committee?

MaryAnne Gilmartin -- Board Chair and Interim Chief Executive Officer

The Board.

Michael Bilerman -- Citigroup -- Analyst

Which members of the Board?

MaryAnne Gilmartin -- Board Chair and Interim Chief Executive Officer

The Board discussed the creation of a committee and populated it with, I believe Akiva Katz, Tammy Jones, Frederic Cumenal as Head of Comp, and I believe that's the committee.

Michael Bilerman -- Citigroup -- Analyst

And how is the Company thinking about the spec of the CEO role for a Company that has been through a number of CEOs, already two has got some strategic alternatives and processes that they're going by has two primary asset types. How do you, I guess get someone to want to take that role and incentivize them to do it, but also what are you looking for in terms of the characteristics of that individual to come lead Mack-Cali in its next chapter?

MaryAnne Gilmartin -- Board Chair and Interim Chief Executive Officer

I don't want to get ahead of the search committee because clearly their job is to create the specification for the new CEO. From what I will say is that I think it's a great gig. I think that there are really strong executives in the real estate industry that have a command of the material and would be fantastic in the role. I want to say that we're focused on finding a driven leader, but not the one that's interested in being a long time CEO within a REIT.

And I'd also say that the work of the day will -- started already and will continue. And so the absence of a permanent CEO would not impede our efforts or our interests in engaging in strategic alternatives, should we decide that there is an intriguing opportunity before us. So it's not holding anything up, but again, in the midst of a pandemic, it's appropriate to recognize that the longer-term leadership, maybe -- may take a while to identify and secure, but my interim role will allow for us to transact and to be effective on execution in the meanwhile.

Michael Bilerman -- Citigroup -- Analyst

And it sounds like you've removed yourself from potentially making yourself permanent in this role, that you view this purely as an interim role and you go back to Board Chair once all said and done?

MaryAnne Gilmartin -- Board Chair and Interim Chief Executive Officer

Correct.

Michael Bilerman -- Citigroup -- Analyst

Okay, thank you.

Operator

[Speech Overlap]. Apologies. As there are no further questions in the queue, I'd like to hand the call back to MaryAnne Gilmartin, CEO for any closing remarks.

MaryAnne Gilmartin -- Board Chair and Interim Chief Executive Officer

Thank you, operator. So I'd like to conclude with a comment on leadership through change and challenge. Many of my career milestones have been amid and through crisis. After 9/11, I led the construction and leasing of the first two new office buildings in New York to rise after the attacks of 9/11, one in Brooklyn for Empire Blue Cross Blue Shield which sustained significant loss of life and space on World Trade Center.

In Time Square post 9/11, I led the construction and lease up of the New York Times tower, faced with what the industry deemed to be an undesirable location, marked as a terrorist target across from the Port Authority sitting atop 11 subway lines, yet we achieved record breaking rents in record time on the highest tower floors, which the industry said would be shunned after the attacks.

In Lower Manhattan, I led the team that financed, built and leased over 900 rental units at New York by Gehry through the 2007 banking crisis when experts wrote off the multi-family market in New York City. On the heels of the great recession, I stepped in to lead the restructuring and recapitalization of Pacific Park Brooklyn and leased thousands of units after it was plagued by delay and litigation.

Post superstorm Sandy, my leasing team in Brooklyn was able to capitalize on Downtown Brooklyn separate power grid, quality infrastructure and high C level coordinates. In short, I'm good in a crisis and while in modern times we have never been through anything quite like a global pandemic, I will lead with my strength, which include empowerment, problem solving and execution.

In closing, for sure, today we find ourselves in an exceptionally challenging environment, that is fraught with change and uncertainty. But in the face of it all, what will remain constant is the team's focus. Suburban disposition, Waterfront leasing, and strengthening the balance sheet. The team and I are fully engaged, and we will look forward to continuing to speak to you all in the coming weeks.

Please stay safe and healthy. Thank you and have a great day.

Operator

[Operator Closing Remarks].

Duration: 50 minutes

Call participants:

Deidre Crockett -- Executive vice president and Chief Administrative Officer

MaryAnne Gilmartin -- Board Chair and Interim Chief Executive Officer

Marshall B. Tycher -- Chairman, Roseland Residential Trust

Nicholas A. Hilton -- Executive Vice President, Leasing

David J. Smetana -- Chief Financial Officer

Emmanuel Korchman -- Citigroup -- Analyst

Derek Johnston -- Deutsche Bank -- Analyst

Steve Sakwa -- Evercore ISI -- Analyst

Anthony Paolone -- J.P. Morgan -- Analyst

Jamie Feldman -- Bank of America Merrill Lynch -- Analyst

Michael Bilerman -- Citigroup -- Analyst

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